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Newsletter October 2016

market volatility - housing net worth and median income on the rise

Every quarter the Federal Reserve releases its flow of funds survey, a report measuring the net worth of households. The report includes a “balance sheet” of assets such as real estate, financial assets, bank accounts, as well as outstanding debt.

The net worth of U.S. households and nonprofit organizations rose in the second quarter to $89.06 trillion, making it the highest on record according to the Federal Reserve. Rising home prices in addition to an increase in the equity markets this year helped propel household net worth. The gains were almost equally split between the $452 billion rise in equities and the $474 billion advance in the value of real estate.
Real estate makes up the single largest component of household wealth, representing about 30%. Corporate equities (individual stocks) make up another 15% of net worth. The components making up household wealth fluctuate in value and are affected by different factors, including monetary and fiscal policy. All in all, a rise in the overall value of these assets is of benefit to economic well-being.
Some economists that follow consumer behavior believe that increases in wealth could make consumers feel more comfortable spending their money, thus contributing to economic growth.

Median household incomes in the U.S. rose for the first time in eight years, elevating the median annual national income to $56,516, yet still 1.6% below 2007 levels.
Income data is closely followed by economists and the Fed as a critical determinant of the economy’s strength and well-being. A rise or fall in incomes is an indicator of future spending habits by consumers. Employment numbers also give the Fed and economists plenty of data to digest, however, income is monumental since it helps identify discretionary income, the amount of money left over after paying all household and living expenses. So as incomes rise, consumers will tend to spend more, thus helping to elevate economic activity.

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Sources: Federal Reserve, U.S. Census Bureau